India - Coal for sale, but where are the buyers?Published by MAC on 2015-09-04
Source: The Hindu
The world's biggest state producer of coal, Coal India Ltd, is now losing customers, at an alarming rate.
Only a year ago the Indian Government (GOI) was being pressurised by the World Bank and IMF to privatise Coal India Ltd. There was talk of multinational companies wanting to buy into it. The Ambanis, the Adanis, Essar Energy andd Jindals were all interested.
But, two months ago, GOI released a percentage of its shares in the market and there were no takers. Last time, the Public Service Unit, the Life Insurance corporation (LIC) was forced to purchase that stock.
(Updated on 22 September 2015)
With demand from key industries falling off, company on marketing overdrive
3 September 2015
Kolkata - For the first time since its inception on November 1, 1975, Coal India Ltd (CIL) is looking for buyers. “We were not ready for this,” says a CIL official, as the threat of major stockpiling at pitheads looms.
In July, a senior CIL official went to Hyderabad to meet power generation utilities to explore ways to step up fuel supplies.
But there was little interest from the gencos.
And, just three weeks back, a major steelmaker asked CIL to stop fuel despatches immediately. With the steel market in doldrums, the company did not want coal piling up.
For CIL, which has often been criticised for not supplying adequate fuel, this is a new experience. No longer is the low stock of coal at power plants a hot media topic. Coal stocks at power plants had risen from 21 days to 25-26 days in August.
Maintaining a large fuel stock is a wasteful expenditure for power plants, as the tariff regulator does not compensate the finance cost of the inventory. Naturally, they are resisting taking fresh deliveries.
In April-August, CIL managed an 8.3 per cent growth in sales by pushing power plants. But no more. And, this when coal production is growing at 10-12 per cent a month.
As against a 10 per cent capacity addition, generation of thermal electricity increased 1.4 per cent during April-July this year compared to the same period last year.
CIL tried other avenues — steel and cement industries — to push sales. But with little success, as these industries are also facing the slowdown blues. In sharp contrast to last year, ferroalloys facilities in Odisha are not lifting coal. There have also been cases of industries avoiding taking delivery of the fuel even after paying for it.
Result: Mounting pithead stocks at CIL mines. For the first time in decades the miner added to the inventory in the first half of the fiscal. Normally, the stock grows in the busy season of October-March.
Worried, the company is on a marketing overdrive. Top officials in the department are out locating buyers.
Mining subsidiaries have been asked to ensure zero complaints on coal size and impurities. Many arms are lagging in procuring surface miners that resolve these issues. Pressure is mounting on them to fall in line.
Beginning this month, the CIL Chairman will hold weekly video-conferences with CMDs of the subsidiaries to take stock of quality issues.
The mining companies will hold buyers’ meets every month.
“We always had a ‘sales’ department under the garb of ‘marketing’, where buyers were queuing up for supplies. This culture must change now,” said a CIL source.
Investment Alert on Coal India share offer
Forthcoming share sale follows years of environmental and human rights controversy
22 September 2015
The following is an investor alert sent by BankTrack to financial institutions on September 21.
We are writing to bring to your attention matters that have a direct bearing on your bank's commitment to a more sustainable low carbon economy. The Government of India recently invited bids from banks to arrange another share offering for Coal India Limited, one of the world’s largest coal miners. This company has been implicated in serious environmental destruction and human rights abuses and has shown no willingness to address these issues.
Indeed, in this year's 'Coal Finance Report Card', published by Rainforest Action Network, Sierra Club and BankTrack, Coal India was one of several companies to receive the 'extreme coal mining' label because of these type of egregious activities which have faced sustained criticism from local communities and global civil society organisations.
The 'Coal Finance Report Card 2015' also discusses further in relation to Coal India that:
"Following an initial public offering in 2010 that involved the sale of 10% of Coal India’s equity, an underwriting consortium involving Bank of America, Credit Suisse, Deutsche Bank, and Goldman Sachs finally managed after two years of delay to sell an additional 10% of the company’s shares in January 2015. While Coal India attempted to portray the sale as a success, foreign investor interest was minimal amidst concerns about rising costs of production and the difficulty in expanding production while keeping operating costs low. Another government firm quietly purchased nearly half the offering to save face. The company has also been accused of misleading investors and the public about the extent of its extractable reserves."
There are a number of new and ongoing issues related to Coal India's coal mining activities which we believe provide highly compelling grounds for your bank not to involve itself in the forthcoming (bids due by September 23) and latest Coal India share offering.
1. Forced displacement of communities to enable mine expansions
Coal India has a worrying record of forcible resettlement of communities, including Indigenous and Dalit communities, in order to expand its mines. While the company, when challenged, cites its resettlement policy and commitments to comply with the law, Amnesty International has documented ongoing forced displacement of communities in connection with the expansion of a coal mine operated by a Coal India subsidiary in Chhattisgarh. For more information about these abuses, see this Amnesty International report from September 2014.
In December 2014, the Ministry of Environment, Forests and Climate Change gave SECL, a Coal India subsidiary, permission to expand production at its open-cast coal mine in Kusmunda from 18.75 mtpa (million tonnes per annum) to 62.5 mtpa. The expansion is expected to lead to the displacement of 9250 families in 17 villages and affect another 5475 families. See also this further Amnesty International update on the situation from February this year.
2. Broken commitments as biodiversity and forest impacts continue
Coal India's continuing reliance on open-pit coal mining involves clear-cutting forests – with grave impacts for forest communities and endangered species like tigers, leopards and elephants. Moreover, recent commitments from the company refer to its reforestation and land reclamation practices. However, only this July, an Indian government investigation found that half of the land Coal India claimed it had reforested was still barren.
3. Promised engagement with civil society has not materialised
As part of Coal India's environmental and social commitments made to four US and European banks (Bank of America, Goldman Sachs, Credit Suisse, and Deutsche Bank) in the lead up to its most recent share offering in February 2015, the company committed to engage with civil society stakeholders, including NGOs, on a range of issues, including the company's impacts on biodiversity. Yet the company has not followed through with Greenpeace or other NGOs in a meaningful way after making this commitment.
The company now plans to double coal production by expanding areas under mining but has so far not released information on what impacts this increased mining will have on forests or communities.
A further alarming development in India since the beginning of this year should also be noted, and should be of major concern to responsible investors: The client in the planned share offering, the Government of India, has been targeting civil society organisations that have criticised the coal industry. Since taking power in May 2014, India’s current leadership has publicly touted its close ties to major coal companies, weakened environmental and human rights regulations, and systematically cracked down on environmental organisations and other civil society groups. These actions have prompted public criticism from the U.S. State Department as well as the U.N. Special Rapporteur on Freedom of Assembly and Association.
The Government of India has admitted this crackdown is linked to coal and has refused to scale back its coal expansion plans, in spite of the impacts of expanded coal production on communities, ecosystems and the climate. By facilitating the government’s share offering, banks which choose to participate in the transaction would be in effect lending tacit support for the government’s position on coal, including its attacks on legitimate voices that have raised concerns about the impacts of coal mining on some of India’s poorest communities.
If you require further clarity on any of these issues, we would be very happy to discuss further with you or your relevant staff.
In conclusion, we would ask your institution not to lend support to Coal India – to profit from the company's latest share offering, and contribute to further environmental and social wrongs, would strongly undermine any aspirations your institutions has of helping to support the transition to a low carbon economy. And we, and our allies around the world, will not hesitate to publicise such a regrettable move, should you opt to assist and support one of the world's most extreme coal companies.
For further inquiries and requests, please contact:
Yann Louvel, Climate and Energy Campaign Coordinator, BankTrack, Tel: +33 688-907-868